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As you navigate through your career in SAP FICO & Accounts & Finance you will
invariably come across Chart of Accounts (COA) every now and then. To know the
basics and more about COA read on…

Contents [hide]
 1 Chart of Accounts
 2 GL Account Groups and Sub Groups
 3 Sub-Ledger and Control Account
 4 GL Account Codes and Description
 5 ERP Environment
 6 SAP and Chart of Accounts

Chart of Accounts
Chart of Accounts is the backbone and foundation of Accounting information
classification (Accounting) and presentation (Reporting).
GL Account Groups and Sub Groups
 General Ledger (GL) Accounts form the bricks for building the COA superstructure.
As you build the living room, dining hall, kitchen and bedroom for your home you
need GL Accounts into a grouping structure. In other words, GL Account Groups
and Sub Groups form the Chart of Accounts structure.

COA Groups Structure is decided based on

 External – statutory reporting requirements

 Internal – business locations, departments, product groups, market segments

GL Account Groups for Balance Sheet

 Fixed Assets,
 Current Assets
 Current Liabilities
 Long-Term Liabilities

GL Account Groups for Profit and Loss

 Income Accounts
 Direct Expenses
 Overheads.

This is only narrative, you will find more groupings in practice.

Sub Groups are subclassifications under the given Group. Example of Sub Groups
under Current Assets main group:

 Stock
 Debtors
 Loans and Advances
 Cash and Bank

Here we say two levels of Grouping. You will see more levels depending on the size
of the organization and complexity of the business.

Groups and Sub Groups come in handy to generate summarized financial reports-
Balance Sheet and Profit and Loss Account. Summarized financial reports with
comparative figures say Current Year and Previous Year will enable the user of the
report to quickly see major deviations. For example, you are interested in knowing
the two years Current Assets, a Balance Sheet report generated with First Level GL
Account Groups helps.
Summarized Financial Reports save time to further focus only on exceptions.

Sub-Ledger and Control Account

An organization transacts business with outsiders also known as business partners
for purchasing of goods and services, sales and so on. So it becomes necessary to
keep a record of say all the purchases and payments with a party in an Account. All
such party accounts will be grouped as Vendors and will be recorded separately as
Vendor Sub Ledger. A Sub Ledger is a separate component of a computerized
Accounting system. Here we need to link the Vendor Sub Ledger to GL. A special
Account called Control Account is defined in GL. Yes, Control Account is the
linking pin between all the Vendors in Sub Ledger and the GL!

So what is unique about a Control Account? No direct postings allowed! Systems

posts an entry as and when a purchase, payment or other adjustments is recorded in
one of the Vendor Account in the Sub Ledger. You will now know that the net total
of all the Vendor Sub Ledger Accounts should exactly match the related GL Control
Account.

Like Vendors Sub Ledger, there is a Sub Ledger for Customers and a corresponding
GL Control Account in the Chart of Account.

GL Account Codes and Description

Every GL Account has two parts, Code, and Description. The code is used by the
computer system to identify the GL Account and is unique. Codes can be numerical
and alphanumerical. Numerical codes are used by most systems. These codes have a
predefined number of digits.

The description is for the reader to infer what the GL Account stands for.

An example can be 600410 Printing and Stationery.

ERP Environment
An ERP environment is characterized by information capture and record at the
origin of the transaction event. For example, Sales is recorded in Sales and
Distribution (SD) Component of the ERP system by Sales Department of the
organization. SD component is designed to provide complete support for all related
functions of Marketing, Sales and Distribution.
Sales Account in GL in an ERP environment is designed with Control Account
Properties, accepting entries only from Sales and Distribution Component.

You will find more GL Accounts act like a Control Account that accepts entries only
from the related systems such as Asset Accounting, Personnel Accounting and
Materials Management.

SAP and Chart of Accounts

By design, SAP differentiates between external statutory reporting and internal
management reporting. So the COA under SAP environment is predominantly
designed to serve external reporting requirements. Internal management reporting is
handled in Controlling Component via Primary Cost Elements which are in many
respects like GL Accounts.
To know more about the basics of SAP Internal and External Reporting, please read
the post ‘Cost Element Basics You Should Know!.
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CHART OF ACCOUNTS